GST: Consumer goods and durables companies are nervous about the festive sales

Faced with an early festive season, consumer goods and durables companies are concerned about the smooth and quick implementation of the goods and services tax (GST), to avoid any negative trade impact in the crucial third quarter.

Varun Berry, MD, Britannia, said, “While GST is a huge long-term positive development, there are bound to be trade disruptions. Procedural details have to be sorted out on a priority basis across stakeholders before September 1, with the festive quarter being earlier this year.” Already, trade channels are destocking to avoid tax payout disparity ahead of the GST rollout.

Sunil Duggal, chief executive, Dabur, said, “Last year, the festive season was impacted by demonetisation. We hope to get GST issues streamlined by August-end and mitigate its impact. We may choose to reduce inventory pipelines even if it means taking a sales hit in June.”

Debashish Mukherjee, head of consumer and retail at management consulting firm AT Kearney, said, “Anything from 45 to 75 days of stock needs to be in the system. It is critical to sort out GST implications on transition inventory. Fast moving consumer goods and durables are seeing green shoots of sustained growth now, after demonetisation and general economic softness. It is important that momentum is maintained this year, including into the festive season.”

The festive season starts in the fourth week of September this year. The wholesale distribution channel — which contributes up to half of the revenue of FMCG companies — is under pressure. Television and home appliance makers are equally worried about GST impacting festive sales, contemplating ways to soften the expected price hike and planning larger consumer promotions.

“The most obvious way to mitigate poor sentiment is to opt for smaller hikes —instead of straightaway passing on the full price increase — to cushion demand ahead of the festive season,” said CM Singh, chief operating officer, Videocon. A two-phased price hike would serve to alleviate any immediate 4-5 percent increase and also helping absorb part of the price increase if demand does not revive by August, so the festive season remains insulated, said two senior industry executives.

Pulkit Baid, director, durables retailer Great Eastern, said brands are in a catch-22 situation on post-GST pricing. “They can neither absorb costs nor pass it to the consumers. They may break the price hike in two phases so the transition appears smoother.”

Kamal Nandi, business head, Godrej Appliances, said all brands will go big on promotions and offers this festive season to offset losses from already weakening sales, which may stay this way till June. “The ray of hope is expectation of a normal monsoon, which will boost rural demand. Also, some arrears of the Seventh Pay Commission are likely to come in, helping push urban demand and upgrade.”

Prices of televisions, refrigerators and air-conditioners are set to go up by 4-5 percent from July, with the GST Council proposing the 28 percent bracket for consumer electronics and durables, compared to the current tax rate of 23-24 percent. Mass consumption products like toothpaste, soaps and hair oil have been taxed at 18 percent, which is significantly lower than the earlier 22-24 per cent. Others such as detergents, shampoo, soft drinks, liquid soaps are in the tax slab of 28 per cent.